City attorney outlines what would happen if Canton voters force city out of municipal liquor business

City Attorney Larry told the Canton City Commission that if residents file a petition to stop the city from operating on-sale and off-sale liquor outlets and that petition succeeds, the city would temporarily have no liquor licenses and would be, in his words, "dry." He described a multi-step legal process under state law that would likely require separate elections and leave community retailers able to sell only malt beverages until authorization for spirits is restored.

"If that was presented and it passed, it's my opinion that you have no liquor licenses in town," Larry said, explaining that the city has never held the election referenced in the statute that authorizes municipalities to permit alcoholic beverages other than malt beverages. He said operating agreements currently allow private retail sales under the city's ownership model and that a successful petition ending municipal operation would terminate those agreements after their contractual notice periods.

Larry said the petition process requires signatures equal to 15% of voters from the last mayoral election and that the ballot would include two related questions: whether the city should stop renewing its on-sale and off-sale licenses (which would remove the city's municipal authority) and whether the municipality should be authorized to allow on-sale and off-sale liquor (a separate authorization to be "wet"). He said both measures are initiated by petition and that, if the initial vote removes municipal authority, a second petition and election would be needed to restore private sales of spirits.

He described practical effects should the city be voted out of the municipal liquor business: existing operating agreements could end (he cited a typical contractual 90-day exit clause), current holders would not be guaranteed a new license, and the city could decide how many on-sale and off-sale licenses to allow (up to statutory maxima). "People that have existing licenses can come in and say we're suitable person, suitable location, but there's no guarantee that they would get a license," Larry said.

Larry provided examples from other South Dakota cities: Pierre and Vermillion use operating agreements with private retailers (he cited a $10,000 annual fee plus a percentage of spirit sales in one Dakota Mart contract); Brookings operates a large municipal liquor store that grosses over $1.2 million (he said that was the figure about a decade ago). He also explained state limits tied to population that determine maximum numbers of licenses and how grandfathering of licenses could be affected by a municipal exit.

On interim retail activity, Larry said malt beverages are treated differently: "Beer is safe harbor. You'll be able to continue to sell beer... but you couldn't get a whiskey cold" if the municipality lacked authorization for spirits. He also warned that if a petition measure fails, a repeat ballot cannot be held for a year.

Commissioners and several retail operators asked about license fees, markups and how operating agreements are negotiated. Larry said the city currently charges a markup (he cited 10% on spirits and 5% on beer) and that the markup percentages and contractual license fees (examples given were $10,000 a year in other contracts) can be renegotiated. He estimated the city collects roughly $100,000 to $110,000 annually from markups and operating revenues but said the precise split between beer and spirits was "not off the top of my head."

Larry recommended the commission review and consider shortening operating-agreement exit periods and to coordinate a road map if a petition is likely. "If someone's gonna bring a petition for you guys not to renew your license, I would suggest we sit down and try to, come up with a road map that's gonna end up answering our other question," he said. He also warned of transition risks: a successful petition could put multiple businesses "out of business" for a period while the municipality determines how many and which licenses to issue.

The discussion included clarifying questions about restaurant licenses (examples cited included Sioux Valley Grill) and whether holders of municipal operating agreements would be treated preferentially; Larry said the statute does not give a statutory preference to operating-agreement holders and that the city could set the number of licenses and the award process by local ordinance and developer/deal criteria.

The commission did not take a formal vote on any petition-related ordinance during this meeting; the matter remained a policy discussion and an instruction to staff and counsel to prepare options and to share model agreements and examples from other municipalities.

Ending: Commissioners asked city staff to provide the current operating agreements, a breakdown of 2024 markup receipts between beer and spirits, and possible draft ordinance language for how the city would award licenses if the municipal system were repealed.